HC Deb 29 October 1998 vol 318 cc453-5
7. Mr. John Bercow (Buckingham)

What research his Department has undertaken on the cost to British industry of increases in interest rates. [55058]

The Secretary of State for Trade and Industry (Mr. Peter Mandelson)

The tough and decisive action by the Government, including taking the politics out of interest rate setting, will create the long-term economic stability that industry needs and ensure that Britain steers a course of stability in an uncertain and unstable world.

Mr. Bercow

I thank the Secretary of State for that reply. Does the right hon. Gentleman not realise that small businesses, which make up more than 90 per cent. of all enterprises in Britain, do not ordinarily pay the implausible interest rates that Ministers habitually parrot in this Chamber, but typically pay 11 per cent. or more on their overdrafts and other business borrowings? What confidence can business men and women, who face the prospect of a deepening economic crisis and who strive daily to keep their heads above water, have in Ministers who fail woefully to understand the real interest rates that real businesses must pay daily in the real world?

Mr. Mandelson

Under the previous Administration, a small business closed every three minutes as a result of the economic policies pursued by that Government. The hon. Gentleman has to understand that industry as a whole—small, medium and larger companies—would stand to lose a great deal more if the Government were to allow the economy to lurch back into the stop-go policies of the past. If we had failed to take the prompt and decisive action that we have taken since coming into office, industry would pay a higher cost in interest rates in future years. That is exactly what happened when interest rates reached 15 per cent. in the early 1990s, precisely because the Government failed to take the necessary action early enough to avoid that happening.

Mr. Martin O'Neill (Ochil)

I welcome my right hon. Friend to the Dispatch Box. What advice will his Department be giving the Monetary Policy Committee now that inflation has been settling at around 2.5 per cent? Can we now look forward to the Government—particularly the Department responsible for manufacturing industry—giving a clear signal, as they are entitled to do in their advice to the MPC, that this is the time for interest rates to start falling even further than last month's welcome quarter of a per cent. cut?

Mr. Mandelson

As my hon. Friend has said, it is the MPC that sets interest rates to meet the Government's inflation target. In doing so, the committee takes account of all available information, some of which comes from my Department. The Government will continue to give the committee full support in whatever difficult decisions on interest rates it has to take. In announcing its last quarter of a per cent. cut in rates, the committee noted that the international economic and financial environment had deteriorated and the outlook for demand had weakened. I am sure that, in view of that, the decision that the committee took was a wise one. I am also sure that that wisdom will continue to be shown in all its decisions.

Mr. John Redwood (Wokingham)

Is the Secretary of State aware that our interest rates are more than double those in France and Germany, making it extremely difficult for our manufacturing businesses to compete? Is he aware that the Bank of England has cited two Government policies as being especially damaging, leading it to leave interest rates higher than manufacturing can afford'? The Bank has cited the coming minimum wage and the impact that it thinks that that will have on wage inflation higher up the scale. In addition, it has cited the big increase in public spending—my right hon. and hon. Friends and I have always criticised the surge in welfare spending over which the Government are presiding.

Why will not the Secretary of State and his colleagues now release us from the pressures of the minimum wage? Why will he not restore family credit, instead of introducing the working families tax credit scheme, which is so much dearer? Does he not realise that the Bank of England would be more relaxed about Government policy if he did so? The Bank would see that expenditure and wages were under better control and it could then start to cut interest rates, as business wants. That is what business desperately needs from him and his colleagues.

Mr. Mandelson

On the subject of public spending, the right hon. Gentleman needs to have a word with his colleagues in the shadow Cabinet, especially the shadow Secretaries of State for Education and Employment and for Health, both of whom have been complaining that the Government, far from spending too much, are spending too little. By what voice should we judge the policies and approach of the Opposition? They speak with many voices and they need to clarify exactly what their view is.

As for the national minimum wage, I note that the right hon. Gentleman wishes to continue the policy of his predecessors, which is to support poverty wages in this country. I have certainly had no sign at all from the Governor of the Bank, who in conversation offered a view on that very subject, that the national minimum wage has been wrongly set. The real disaster for the economy would be to retreat to the boom-and-bust policies of the previous Administration, which did such enormous and long-term damage to British jobs and British prosperity.

Mr. Redwood

Perhaps if the Secretary of State read the minutes of the Monetary Policy Committee, he and his colleagues would start to relieve the pressure on businesses, as they need him to do. Will he stop peddling false rumours about the Opposition's position? All of us—the Leader of the Opposition, the shadow Chancellor, the relevant spokesmen and myself—support improved provision for health and education. We all condemn the wasteful rake's progress and breaking of promises on welfare. If the right hon. Gentleman sorted out those matters and read the minutes of the MPC, industry might not have to suffer so much.

Mr. Mandelson

The right hon. Gentleman is obviously determined to add bluster to his policies of boom and bust. The Conservative party's spin doctors are responsible for sorting out the rival positions of members of the shadow cabinet; I am glad that I moved on from that responsibility some time ago.